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As a franchisor, you must consider how you will supply products to your franchisees. If there are supply issues, your franchisees might raise issues with the supply chain. Therefore, to avoid this, you must ensure this process runs smoothly. Further, you must decide where your franchisees will get their products from and what products they will sell. Often, these decisions will depend on your business goals and your industry.

This article will outline some methods by which you can supply products to your franchisees. 

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Deciding What Products to Sell

Before you can decide how to supply products to your franchisees, you must first determine what products to supply. This decision depends on your business type and what materials and equipment your franchisees will need. For instance, you may decide to provide your franchisees with all equipment and raw materials. So, consider that you own a coffee franchise. In this case, you may supply your franchisees with: 

  • coffee beans; 
  • coffee makers; and 
  • other ingredients such as milk. 

Alternatively, you may only supply the ingredients and require your franchisee to invest in equipment or vice versa. Furthermore, it is important to note that consistency is essential to the success of your franchises. As a result, you may decide to restrict your franchisee’s equipment to one brand. 

Additionally, your franchise agreement and disclosure document should outline the products or equipment you wish to supply to your franchisees. For example, you might have a list of suppliers that you approve. This means that franchisees can only obtain products from these suppliers.  

Supplying Products to Your Franchisees

Consistency is crucial to the success of your brand. Therefore, you should aim for all your franchisees to acquire their products from the same place. Alternatively, you might require that they purchase materials of the same quality. This will help ensure that you build a strong positive image of your brand in the market and that customers can expect the same quality from all your franchises. Moreover, doing this creates consistency in your supply chain and franchise systems. 

Ultimately, there are three ways in which you can supply your franchisees with goods:

  • selling directly to the franchisee;
  • having a limited list of approved suppliers; or
  • having a list of authorised products.

Selling Directly to the Franchise

As the franchisor, you may manufacture the products you wish to sell to your franchisees. Ultimately, this option allows you to maintain the highest level of involvement and control over the products you supply. Further, it allows you to ensure that the products you supply are consistent and of the highest quality. 

Furthermore, with this option, you may elect to manufacture the goods and use a distributor to provide your franchisees with the goods. However, this adds another intermediary to the distribution channel, which will increase costs. On the other hand, having a distributor decreases storage and transportation costs, mainly if your franchisees are all across New Zealand. 

It may be helpful to note that when manufacturing products yourself, you must create safe products and ensure they are not faulty. Furthermore, you must take reasonable steps to ensure that you are not negligent in manufacturing products. Moreover, you must ensure that the production of your supplies can keep up with the amount of product in demand. 

Failing to manufacture safe products may also breach your responsibilities in your franchise agreement.

Approved Supplier List

Providing franchisees with a list of suppliers that the franchisor approves of is a popular supply option that requires less direct involvement. This list of suppliers limits where franchisees can purchase products and materials. As a result, you can still maintain some control over the quality of the products your franchise uses and sells. However, this is only the case if the supplier does not provide your franchisees with substitutions.  

To avoid the issue of substitution, negotiating a contract term with your suppliers may be a good idea. Ultimately, this term should outline that they can not make substitutions unless you approve them. Moreover, when choosing suppliers, you can often negotiate for the lowest price on goods. Generally, this is the case if your franchisees will be bulk buying. 

Furthermore, when approving suppliers, you have a responsibility as the franchisor to act in good faith. Therefore, you must be honest with your franchisees and ensure they know the costs when buying from the supplier list. 

Authorised Products

Alternatively, you may supply goods to your franchisees by providing them with a list of authorised products they can sell. In doing this, you can set the product: 

  • standards; 
  • type; 
  • quality; and 
  • specifications. 

Then, your franchisee can purchase the authorised products from any vendor they like. This method lets franchisees source the products locally, decreasing transportation costs. 

Key Takeaways

Deciding how to supply products to your franchisees is an important decision that will affect the consistency and quality of your franchise business. Essentially, you can manufacture and sell the products directly to your franchisees, or you may choose to give them a list of approved suppliers or authorised products. Furthermore, when conducting this process, you must act in good faith. This means you should notify your franchisees if there is an increase in any supply costs. 

If you need help constructing a process of supplying products to your franchisees, our experienced franchising lawyers can assist as part of our LegalVision membership. You will have unlimited access to lawyers who can answer your questions and draft and review your documents for a low monthly fee. Call us today at 0800 005 570 or visit our membership page

Frequently Asked Questions

Can I sell products to my franchisee directly?

Yes. You may also choose to manufacture the products yourself or sell your products through a distributor. Further, if you are manufacturing products, you must ensure they are safe and not faulty. 

How do I restrict what suppliers my franchisees buy from?

You can do this by providing your franchisees with an approved list of suppliers from who they can buy. If your franchisee buys from elsewhere, they will breach their franchise agreement. 

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